North Carolina Lawmakers Ram Through Plan That Would Increase Taxes On Poor People

North Carolina lawmakers rammed through massive tax reforms on Tuesday that would disproportionately benefit higher-income earners, bringing the measure to a vote in the House after approximately 25 minutes of debate. The legislative compromise, which was formally unveiled on Monday, represents some of the biggest most regressive changes to North Carolina’s tax code in eight decades. The Senate will take up the measure on Tuesday afternoon, both chambers will hold final votes Wednesday, and Gov. Pat McCrory (R) is expected to sign it by the end of the week.

“Those with average incomes of nearly $1 million would receive a total tax cut of nearly $10,000,” the North Carolina Justice Center estimated, while the bottom 80 percent of taxpayers “would experience an increase in their taxes on average.”

The package will “reduce the number of individual income tax brackets from three brackets to one while raising the standard deduction and capping deductions on mortgage interest and property taxes. The current income tax rates of 6, 7 and 7.75 percent based on income would be reduced to a flat rate of 5.8 percent in 2014 and 5.75 percent in 2015.”

The tax rate corporations pay would fall from 6.9 percent “to 6 percent in 2014 and 5 percent in 2015” and could drop to 3 percent in 2017 “if tax revenues grow at a strong enough clip.” The estate tax is also repealed. As a result, revenue would fall by $500 million in two years and $2 billion over five years, laying the groundwork for additional cuts to government spending.

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Meanwhile, sales taxes on manufactured homes, modular homes, and electricity sales would eventually increase, disproportionately impacting lower-income residents. In 2014, the state would also end its sales tax holiday weekend in August and the Energy Star appliance sales tax holiday weekend in November.

The state’s tax system already favors the wealthiest, as the bottom 80 percent pay between 9 and 10 percent of their income in combined sales and income taxes compared to just 6.5 percent for the top one percent of earners. The plan passed Tuesday would exacerbate that inequity. The North Carolina Justice Center warns that lower income North Carolinians would see their tax burden increase under the plan, while the very rich would experience a tax reduction of up to 1.1 percent of their earnings: